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GM predicts modest pretax profit gain this year

By DEE-ANN DURBIN AP Auto Writer

Posted:
01/15/2014 06:35:35 AM MST

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FILE - In this Monday, Jan. 13, 2014, file photo Incoming General Motors CEO Mary Barra watches the North American Truck of the Year and Car of the Year awards at the North American International Auto Show in Detroit, Monday, Jan. 13, 2014. General Motors Co. said Wednesday, Jan. 15, 2014, it expects a modest gain in pretax profits this year as global sales growth slows.

DETROIT—General Motors Co. said Wednesday it expects a modest gain in pretax profits this year as global sales growth slows.

The No. 1 U.S. automaker joined others in forecasting slower growth in the red-hot U.S. market. Still, GM and industry analysts expect sales to reach or exceed 16 million for the first time since 2007.

GM said it plans to use profits from the U.S. and China—now its largest market—to boost weaker parts of its business. For instance, it will spend an estimated $1.1 billion to restructure its European operations.

"We're taking advantage of the strength in the U.S. and China to engage in other areas such as our international operations," GM's president, Dan Ammann, said on a conference call with reporters. Ammann said GM's restructuring costs should drop off significantly in 2015.

But the restructuring this year will mean flat profit margins, a development that concerned some analysts. In a research note, Barclay's analyst Brian Johnson said flat margins imply 2014 earnings of $3.60 to $3.80 per share, below his estimate of $4.06. But Johnson said it's possible GM's new management team is being overly conservative to set the bar low.

Shares of GM fell 52 cents, or 1.3 percent, to $39.50 in afternoon trading. That took some of the shine off Tuesday's announcement that GM would pay a dividend this year for the first time since 2008. But GM's outlook wasn't as concerning to investors as Ford Motor Co.

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's, which warned last month of lower pretax profit and pressure on pricing.

GM announced the outlook on its first day under new management. Mary Barra became GM's new CEO Wednesday, replacing Dan Akerson. Ammann, the former chief financial officer, became president, while Chuck Stevens, the former CFO of North America, is GM's new CFO.

In a presentation at a Deutsche Bank auto conference in Detroit, Ammann says GM expects global industry sales to grow by about 2 percent this year to more than 85 million vehicles. That's slower than the 4-percent growth rate the company saw in 2013.

In China, sales could slow if the government tightens curbs on vehicle ownership to limit traffic and smog. Close to 18 million cars and light trucks were sold in China in 2013.

GM, Ford, Toyota, Nissan and others expect U.S. sales between 16 million and 16.5 million this year—implying an increase of 2.5 percent to 5.8 percent over last year's sales of 15.6 million. It would be the first time in five years that sales didn't rise by more than 1 million vehicles. Growth is leveling off as the U.S. approaches a healthy, pre-recession sales rate.

Ammann said GM's new vehicles should help it see modest market share increases in the U.S. and elsewhere. GM is launching 15 new or ungraded models in the U.S. this year, including the Chevrolet Colorado midsize truck and the Cadillac Escalade.

GM expressed confidence in its long-term prospects Tuesday, when it reinstated its quarterly dividend after nearly six years. GM will pay a 30-cent dividend to shareholders in March.

Ford worried investors last month when it warned that pretax profit could fall as much as $1.5 billion this year. Ford plans to introduce 16 new vehicles in the U.S. in 2014, including a new F-150 pickup truck and a new small crossover, the Lincoln MKC. But Ford says slower sales will hurt its ability to raise prices to make up for the cost of the vehicle launches. It will also have to halt truck production for several weeks to prepare its plants for the new F-150.

Ford also expects global sales of 85 million to 90 million vehicles this year, up from 75 million four years ago.